Opinion
December 7, 1933.
January 2, 1934.
Building and loan association — Assumption of payment of first mortgage — Increase of indebtedness — Corporations — Article 16, section 7 of the Constitution — Powers — Ultra vires — Necessity of creditor to exhaust security.
1. A contract between a mortgagee and a building and loan association which owns the premises upon which the mortgage is secured, whereby the mortgagee extends the time for payment of the principal and the association, in consideration of such forbearance, obligates itself to pay the principal debt, interest, taxes and insurance, does not constitute an increase of indebtedness of the association within the meaning of article 16, section 7, of the Constitution. [392-3]
2. Such an agreement is an original undertaking on the part of the building and loan association, not a contract of suretyship, and not ultra vires. [393]
3. Under such contract the mortgagee is not bound to exhaust the security before suing on the contract. [394]
Corporations — Officers — Authority — Execution of contract by president and secretary — Act of May 12, 1925, P. L. 615.
4. Where an agreement between a mortgagee and a building and loan association which owns the mortgaged premises, for the assumption by the association of payment of the mortgage debt, in consideration of forbearance by the mortgagee of its rights under the first mortgage, is signed by the president and secretary of the association, the corporation is bound by the act of these officers under the Act of May 12, 1925, P. L. 615. [393-4]
Before FRAZER, C. J., SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.
Appeal, No. 341, Jan. T., 1933, by defendant, from judgment of C. P. No. 1, Philadelphia Co., Sept. T., 1932, No. 9205, in case of Bettina A. Bennett v. Rittenhouse Short-Term Building Loan Association. Judgment affirmed.
Assumpsit on contract to assume payment of mortgage.
The facts are stated in the opinion of the lower court, PARRY, J., as follows:
"The plaintiff holds the bond of one Louis Feldman secured by a first mortgage on certain property of which the defendant is now the real owner. On June 25, 1929, the balance of $9,000 of principal of the first mortgage being past due, the plaintiff and defendant entered into a written agreement whereby the plaintiff extended the time for payment of the principal and the defendant, in consideration of this forbearance, obligated itself to pay the principal debt, interest, taxes, water rent and insurance. This agreement was signed by the president and secretary of the defendant building and loan association. Subsequently, the association voted to wind up its affairs and liquidating trustees were appointed. Before the first agreement expired these trustees and the plaintiff extended its terms to March 1933.
"There was a default in interest due September, 1932, whereupon under the bond and mortgage and the extension agreement the principal debt fell due and the plaintiff brought suit. The defendant filed a statutory demurrer, which was overruled; then an affidavit and a supplemental affidavit of defense. The plaintiff filed a rule for judgment on the ground that the defense was insufficient.
"On behalf of the defendant it is urged that the association is not liable on the contract (a) because it constitutes an increase of indebtedness of the association and was executed without the consent of the shareholders required by article 16, section 7 of the Constitution of this Commonwealth and other acts, (b) because it is a contract of suretyship and therefore ultra vires, (c) because the officers who signed the instrument were without authority to execute such a contract.
"As to the first contention, the transaction was not one whereby the corporation sought to increase its capital indebtedness by borrowing money; it was a promise to pay for the forbearance of the plaintiff made of course in the expectation that the property could eventually be sold for enough to meet the obligation and leave something for the association. Nowadays such an arrangement is often the only means by which a second mortgagee can hope to realize any of his investment in a property, hence it must be regarded as one in the usual course of business of building and loan associations. It is settled that the constitutional and statutory provisions cited by defendant do not extend to liability so incurred. See West Company v. Dyson, 230 Pa. 619 (1911). Krebs v. Oberrender, 274 Pa. 154 (1922).
"The same observations dispose of the contention that the contract is one of suretyship. It was an original undertaking, a promise to compensate the plaintiff for not exercising her lien on the property then belonging to the defendant.
"The Act of May 12, 1925, P. L. 615, provides: 'Section 1. Be it enacted, etc., That the by-laws of any corporation organized or doing business within the Commonwealth shall operate merely as regulations among members or stockholders of the corporation and shall have no effect upon contracts or other dealings with other persons unless such persons shall have actual knowledge of such by-laws.
" 'Section 2. Any note, mortgage, evidence of indebtedness, contract, or other instrument of writing or any assignment or endorsement thereof, executed or entered into between any corporation organized or doing business within the Commonwealth and any other person, copartnership, association, or corporation, when signed by the president or vice-president and secretary or treasurer of such corporation, shall be held to have been properly executed for and in behalf of such corporation.'
"It clearly clothes the president and secretary with authority to execute the contract and bind the corporation to the plaintiff. If the authority was in fact wanting that is a matter between the corporation and its officer. This is the only real issue of fact raised by the defendant's pleadings. Lastly the defendant suggests that the plaintiff is bound to exhaust her security before suing on the contract but the plaintiff's mortgage lien was security for Feldman's debt and the defendant's new promise was not accompanied by the transfer of any security.
"The rule is made absolute and judgment entered for the plaintiff and against the defendant upon the pleadings."
Judgment for plaintiff for want of sufficient affidavit of defense. Defendant appealed.
Error assigned, was judgment, quoting record.
Louis A. J. Robbins, for appellant.
Abraham L. Hodes and Harry Polish, of Polish Wachs, for appellee, were not heard.
Argued December 7, 1933.
The opinion of the learned judge of the court below fully and correctly disposes of all questions raised in this appeal. The judgment is accordingly affirmed on his opinion.